Monday, December 25, 2006

Here is an excellent writing by the Prime Minister of India Dr. Manmohan Singh. This article was orginally published in "The Week" Magazine. You can read the orginal at: http://week.manoramaonline.com.

I am delighted that THE WEEK is celebrating its silver jubilee. I am also happy that you have chosen for your anniversary issue the theme 'Indian renaissance'. India has experienced a renaissance of sorts in the last 25 years. After the initial burst of energy and enthusiasm in the early years after Independence, during which India broke decisively from over a century of lack of development and progress, the country passed into nearly two decades of crisis and slower growth.

Taken together, the 25 years during which THE WEEK has been in print have been a period of great creativity and enterprise in our country. This has been so not just on the economic front but also on the social and cultural front. The enormous growth of the media in these 25 years is just one instance of the burst of creativity and energy at home. New businesses, trade, arts and crafts have come up. And so have new social and political trends and tendencies.

Today, in two vastly different spheres of human activity we see a new India. One is the world of business and the other the sphere of civil society. Few of the top 100 business groups in the country today existed in 1981. As I observed recently at a media event, not only were none of the awardees for excellence in business in two different businesses 25 years ago, but even their lines of business did not exist as an area of business activity 25 years ago. Thus, we have seen a renaissance of sorts in the important area of creativity and enterprise.

The second striking phenomenon of the past quarter century is civil society activism. India has become the NGO capital of the world. Across the length and breadth of the country, I find highly motivated and talented young women and men engaged in a wide range of social and developmental work through NGOs. Many of them have had good education and could have pursued highly remunerative careers not just in our major cities, but in some of the biggest cities of the world. Yet, they chose to work in distant villages, educating and empowering Dalits, tribals, women, children and other oppressed or disadvantaged sections of society. Many others have taken the benefits of modern science and technology to remote areas, economically empowering marginalised groups.

These two vastly different phenomena, in two very different walks of life, have given India a new visibility in two different worlds-that of the world economic forum and that of the world social forum. The reality of India is captured by this diversity.

The 'Indian renaissance' is also reflected in the burst of intellectual energy that we find in the world of literature, art and cinema. India publishes more books than most countries in the world. It was not, therefore, surprising to see India being the toast of the World Book Fair in Frankfurt earlier this year. Indian cinema has made its mark and so have Indian artists whose works are selling at rising prices the world over.

All this symbolises the new energy of a new India. However, there is a long road ahead. The backlog of poverty, ignorance and disease continues to hold India and Indians back. We have to invest more in education, health care and labour-intensive sectors that generate employment, and so on to bridge the development divide in India. No nation can boast of a renaissance, much less a resurgence, if half the population is illiterate or semi-literate.

Our dreams of building a 'knowledge society' will come to nought if all our children are not in school, do not get a healthy meal and do not have the opportunity to improve their economic lot and social status through education. Universal and modern education, based on what Pandit Nehru used to call a "scientific temper" and the values of liberalism and pluralism, is therefore a necessary precondition for a more broad-based renaissance.

We must also pay more attention to the social and political causes of violence and lack of social peace in our neighbourhood. India cannot develop and move forward if it lives in a region of economic and social backwardness. India's destiny, as indeed India's heritage, is shared with its neighbours. The values of liberalism, pluralism, the rule of law, equality of all ethnic groups, religious communities and linguistic and social groups and, above all, a rational outlook based on a modern and scientific temper must pervade all of south Asia so that the region as a whole can prosper and live in peace.

What has truly contributed to India's social and cultural development is the pluralistic nature of our open society and economy. As a multi-cultural, multi-lingual, multi-ethnic and multi-religious nation, India has created a wide space for the full expression of human creativity and ingenuity. It is in this diversity, this plurality and the inherent unity of the Indian psyche, so brilliantly captured in the idea of Vasudhaiva Kutumbakam [the world is one family] that we find the roots of the Indian renaissance.

I hope THE WEEK is able to convey this idea to all its readers through its columns week after week. I wish you success in your noble endeavours and wish all your readers a Happy New Year.

Barring sudden disasters, India will welcome the New Year in a satisfactory frame of mind. Considering the alarming conditions in several parts of the world - the Middle East for instance - India can claim to have earned the blessings of providence to be reasonably well placed at the moment.

The economy is chugging along at a brisk pace. The deficiencies, mainly in agriculture, have been recognized, even if belatedly, and Prime Minister Manmohan Singh has promised redress. If tackled imaginatively, this sad chapter in the nation's life, highlighted by farmers' suicides, should come to a close.

In politics, the scene is much better. The earlier fears about the durability of coalition regimes have been largely dispelled. The multi-party alliances run by Manmohan Singh, and by Atal Bihari Vajpayee before him, have proved to be relatively stable, notwithstanding the presence in them of small regional parties with their narrow caste-based provincial attitudes.

As if to cap the good news from the economic and political fronts, the India-US nuclear deal has emphasized India's unique status in the world. India is now the only country that has been accepted as a legitimate nuclear power although it not only refused to sign the non-proliferation treaty (NPT) but tested nuclear weapons in 1974 and 1998 in defiance.

This new shining image of a "nuclear" India is in striking contrast to countries like Pakistan, which is suspected of having had a hand in the black marketing of nuclear technology, or North Korea that is regarded as a rogue state, or Israel that is believed to have a secret nuclear arsenal, or Iran whose nuclear programme is a cause for worldwide concern.

There are several reasons why the US and the world have chosen to overlook India's transgressions of the nuclear protocol. One is its responsible behaviour even after going nuclear to register its principled opposition to the NPT, which arbitrarily divided the world into nuclear "haves" and "have-nots".

The second is its robust economy that has removed all doubts about India's emergence as a regional superpower.

And the third - and perhaps most important - reason is its remarkably successful democratic experiment in a country with 4,635 communities speaking 23 major languages, including 17 "official" ones, 22,000 distinct dialects, 85 locally or nationally important political parties and, last but not the least, with 300 ways of cooking the potato.

Considering that Charles de Gaulle had wondered how a country like France could be kept together when it produced 265 varieties of cheese, it is not difficult to appreciate the extraordinary nature of India's achievement.

What is also noteworthy is the growing belief that just as Indian democracy has smoothened the rough edges of a diverse society, it has also taken out the sting from the rapid economic progress via the route of market economy.

While Reuters has noted a dramatic rise in the number of riots in autocratic China from 10,000 in 1994 to 74,000 in 2004, India has been relatively free of the social tension caused by the growing disparity between the rich and the poor, which is an inevitable early fallout of "neo-liberal" economic policies.

It is not that there haven't been protests in India. The latest such resistance to the official encouragement of capitalist strategies is in Singur in West Bengal, where the main opposition party is up in arms against the acquisition of fertile agricultural land by the Tatas for a small cars factory.

Earlier, similar industrial ventures involving farmlands in the neighbouring state of Orissa by the Tatas and the South Korean steel giant Posco led to police firing and deaths of tribal demonstrators.

The setting up of Special Economic Zones in nearly all the states providing tax relief and other incentives to domestic and foreign investors has also attracted protests from the opposition parties. But while news of the unrest in China trickles out after a considerable lapse of time, the protests in India are played out in full view of the television cameras and media personnel.

The pros and cons of these contentious developments are also discussed threadbare in parliament, state legislatures, public forums and television and radio studios. The result is that the lid is taken off a volatile situation. Therefore, it rarely boils over into widespread violence.This is not India's only saving grace. What has also ensured social harmony is the fact that the governments of all hues, ranging from West Bengal run by the Communist Party of India-Marxist to Gujarat under the Bharatiya Janata Party, are all eager to make the most of the economic upsurge. As a result, they all value the market economy, which is normally the bugbear of the dogmatic Left and also evoke the ire of the protectionist Right.

Given these factors, it may be safe to predict that 2007 will give a more definitive direction toIndia's policies in several fields - economic, political and foreign affairs. While pro-capitalist policies will lead to the burial of "socialism", a two-coalition system is likely to evolve with the Congress-Left alliance on one side and the BJP-Janata Dal-United on the other.

At the same time, the presence of a large number of smaller parties acting as allies will prevent the two major coalitions from adopting extremist postures, thereby ensuring the pursuit of moderate policies.

In foreign affairs, India's growing proximity to the US will be the final nail in the coffin of the cold warriors in both New Delhi and Washington. But America will also realize that India is too large and too boisterous a democracy to endorse whatever the US may say. In this respect, the tradition of non-alignment will survive.

And the icing on the cake may well be an understanding with Pakistan on the basis of the suggestions made by both Manmohan Singh and Pervez Musharraf about making the Line of Control (LoC) in Jammu and Kashmir irrelevant.

Banking sector is the best performing sector in Indian economy today. With the economy growing at 8.6%, the need for banking services is growing at 34% - no wonder many foreign banks are eager to expand in India. Few days ago I had written about stock investments in two leading banks in India: ICICI Bank & HDFC Bank. The performance of these banks can be taken as indicators of the growth opportunity that exists for banks in India.

Global Banking Giants have got a Foot hold

India liberalized banking sector in 1990’s - albeit in a limited way. Foreign banks still have to follow a myriad set of rules and regulations to establish in India. But this has not prevented Citi Bank, HSBC, ABM Amro, Standard Chartered from setting up retail banking operations in India - Citi & HSBC banks are way ahead in setting up retail operations in India when compared to other foreign banks.

Time is ripe for Global Banking giants

Retail banking in India is dominated by State owned banks - SBI group, Canara Bank, Punjab National Bank and a whole lot of other banks. These banks are lack the entrepreneurial sprit - and are very conservative in their operations.

As a result consumer loans constitute only 8% of total bank lending in India, compared with 36% in Taiwan and 58% in South Korea, according to Enam Securities in Bombay. Mortgages, meanwhile, form a mere 2% of gross domestic product in India, compared with 17% in Malaysia and 51% in the U.S. (Source: Wall Street Journal 2006)

Another result of such conservative banking: most Indian companies do not use bank credit as a means of financing.

This has created an ideal situation for global banks to setup operations and rapidly gain market share by serving the customers - who are unserved by the public sector banks: Consumers, Rural/Agriculture, entrepreneurs etc.

Another very good reason for foreign banks to come to India is Economics of Scope. Major customers of these banks abroad have setup operations in India. MNCs such as GM, Ford, Volkswagen, Daimler-Chrysler, IBM, SUN, HP, Cisco, Intel, Microsoft, BASF, AOL-TimeWarner, GE and several others need banking services in India and they are now forced to use local banks or other banks rather than their main banks at home. Global banks need to expand in India to serve their long standing corporate customers in India.The opportunities in India are immense: starting from corporate banking, SME, Retail banking, consumer finance, and micro finance. Currently, most foreign banks are concentrating on corporate banking only - but the real opportunity is in retail banking and consumer finance.

Giants Waiting to Expand

Indian growth story is not lost on the global banking giants - particularly European banks. Led by HSBC and Standard Chartered, European banking giants are eager to make a big splash in 2007. Deutsche Bank, Barclays, ABN Amro, BNP Paribas and Societe Generale have announced big investment plans and budgets for 2007.

Macquarie Bank from Australia, Development Bank of Singapore, Citi Bank, and Bank of America have also announced major expansions in 2007. In total 37 foreign banks are currently operating in India with 217 branches ( most banks are operating in a very limited way).

Compared to China, Banking sector in India is much more open in India. Foreign banks can enter India through wholly owned subsidiary or via joint venture. In case of a JV, foreign investors can own upto 74% of the equity. India has about 37 foreign banks operating in India already. In China, by comparison has none. Only in December 2006, Chinese government gave permission to nine foreign banks to start operations in mainland China. (HSBC, Standard Chartered, Bank of East Asia, Hang Seng Bank, Mizuho Corporate Bank and Bank of Tokyo-Mitsubishi UFJ, DBS Bank, of Singapore; and ABN Amro)

Closing Thoughts

Banking is one of the essential tools of capitalism. With Indian economy opening up and booming the time is ripe for foreign banks to expand and establish in India. Apart from banks, opportunities are there for non-banking finance operations - such as GE Finance, Citi Finance which are primarily engaged in consumer finance.

European banks have taken India seriously and are planning on massive expansion in the coming years. A notable aspect has been the absence of American banks in India - barring Citi bank, no other major American bank has opened any significant operations in India. Wells Fargo Bank, Bank of Wachovia, Bank One, First Union, etc. are yet to setup operations in India. Similarly Japanese banks are absent in Indian markets. Given the latent demand for banking services in India it is still not late to make a big splash in the coming years.

Saturday, December 23, 2006

In my last article I had written about why retailer companies must invest in India. See: Why Invest in India? . I am continuing this series with the next installment - with opportunities in travel industry.

Ever since India started on market reforms - deregulation of civil aviation, the number of Indian travelers (by air) is exploded. According to one estimate approximately, 75 million passengers travel by air per year in 2005. This number includes both domestic & international air travel. This number is expected to grow exponentially to approximately 350 million passengers by 2020. According to Ministry of Civil Aviation, Indian carries will acquire about 2000 planes in the coming 20 years. ( This is in addition to leases of aircrafts) In 2005 alone, Indian carriers placed an order for 327 airplanes.

India has embarked on a long journey towards airport modernization aimed to make antiquated Indian airports on par with the worlds best. This privatization move has created tremendous opportunities for foreign investors in infrastructure development and equipment suppliers. Seimens is a major investor in Bangalore Airport project.

By 2020, the number of airline passengers in India is likely to exceed that of USA. Sensing a mega opportunity, international hotel chains such as Hilton, Marriot and few others are lining up investments in India. Car rental agencies such as Avis & Hertz are already operating in India and other agencies are on the way.

Closing Thoughts

Indian civil aviation sector is seeing an annual growth rate of 37% - and a huge latent demand is yet to be tapped. With further liberalization and entry of Indian carriers into international routes, the number of passengers is bound to increase. This exponential growth is an ideal opportunity for foreign companies to invest in India. India is already one of the largest market for Airbus and Boeing. Soon companies will setup aircraft maintenance operations in India. American & European companies must now plan their rapid entry into India in next few years or they will lose this golden opportunity forever.

Friday, December 22, 2006

Recently I wrote an article on how eager global giants are to enter Indian market. See: Joint Ventures is a preferred way to Enter India. The reasons why companies like HSBC, ABN AMRO, Starbucks, Wal-Mart, Ford, GM and others may not be obvious for most people living outside India. ( For that matter, it may not be obvious for most Indians too). But there are solid reasons for companies to be investing in India. The reasons are numerous - it ranges from market size, market opportunity and competitive moves, but that's just the high level reasoning. The real reasons can be seen by digging a little deeper.

Starting today, I will be writing a series of short blog articles - each giving out a different reason as to why a certain foreign companies must invest in India. The objective of these writings is to provide a deeper insight of the opportunities that exist in India for investors and entrepreneurs who are willing to take the risk and invest in India.

Why Invest? Ans:- Youth of India

Everyone knows that India has a large population. This large population offers huge opportunities in different demographic segments. One of such attractive segment is the youth or teenage population.

India is home to the largest population of teenagers anywhere in the world. India has about 115.3 Million teenagers!! This number even surpasses the number of teenagers in the US, Canada, UK, France, Germany, Italy and Japan combined. (BTW, these are called as G7 countries and they account for more than 80% of the global wealth). This astounding number of teenagers in India poses an immense market potential for a whole lot of products: Fashion accessories, Fast foods, books, education, clothes, music, electronics. Sports, entertainment etc.

Few early investors are already reaping the benefits of this huge teenage population: Levi’s, LVMH, Adidas, Nike, MTV, Disney, McDonald's, Pizza Hut, Domino’s, Subway, Pepsi, Coca Cola to name a few. But the market is still wide open for others to enter and capitalize on the potential.

Market Potential

74% of the urban teenagers have cell phones

81% of the urban youth use computers

89% watch television daily

73% listen to radio

91% watch movies regularly

With the Indian GDP growing at close to 9%, India is poised to become the third largest economy by 2012 (surpassing Japan), India offers an unparalleled business opportunity for all. A study conducted by Business Today estimated that Indian youth in cities alone spends Rs 190,000 crore a year - $42 billion dollars!

Indian youth are highly brand conscious and are willing a pay more for a reputed brand. Erich Stamminger President & CEO, Adidas Brand, Adidas has this to say about Indian youth: "Indian consumers are very rational in their purchase decisions. For them , the brand name is important. I think they will consider entering your store only because of the brand you are but they always need a rational argument about functionality and utility of a brand before making the final purchase decision."

Another display of youth power in India can be seen at Louis Vuitton - a wopping 18% of all LVMH sales in India comes from the teenage customers!

Closing Thoughts

Economy is always driven by the market demographics. The population in the US, Japan and Western Europe is aging rapidly. This implies that the business which sell to teenagers & youth cannot expect growth from these countries. Instead companies must concentrate on countries which have a large youth population - like India. Several American firms have realized this and are actively exploring the market entry options. So as Starbucks is poised to open its first outlet in India in 2007, will Dunkin Donuts, Cafe Nero, Costa Coffee sit idle and watch Starbucks capture Indian market?

What is the source to new wealth? How does a company achieve an exponential growth? These questions are always haunting business leaders today - but surprisingly, the answer is very simple. One just needs to look at the successful companies around and the answer becomes crystal clear - "Innovation". The answer is deceptively simple - because the challenge of successful innovation is not easy to conquer.

Need for Business creativity and Innovation

Post Independence, Indian firms were not aggressive in developing a strong R&D capability, and even those companies which had a formal R&D department, concentrated only on technology assimilation, localization and indigenous production. (This was mainly due to license raj regime followed by the socialist governments) It was only after 1991, when the license raj was dismantled, Indian companies began to take a fresh look at Innovation and the results are truly spectacular: Reliance, Infosys, Wipro, Bharti, Mahindra & Mahindra, Tata Motors, Dr. Reddy Labs, Biocon, Bharat Forge etc. These companies have created enormous wealth - only because they were able to innovate new products and services.

Indian IT industry took an early lead by innovating a "Global Delivery Model". Today that model has been successfully adapted by BPO, KPO firms as well. Innovation at Reliance Industries is also another classic example of process innovation. One of the main reason for Reliance’s success is its unique "de-bottlenecking" capability. This allows Reliance to constantly increase its production capacity and lower the costs at the same time.

Innovation should not be confused with invention. Invention is creation of new tools, where as innovation includes invention and a lot more. Innovation includes invention of something new, developing a new use for existing use, developing a new process or a method to solve existing problem and economic value creation from creative ideas. From a business point of view, the last point is most important: Creating economic value by new means is innovation.

Innovation is a product of creativity. Creative individuals in a right environment become innovators. From business point of view, creativity is best defined as an act of making something new which is useful and appropriate.

Tools for business creativityOrganizations worldwide have realized the need for innovation and are taking deliberate steps to foster innovation. As a first step, companies are hiring creative people - artists, scientists, engineers etc. However hiring creative people alone does not produce innovation. Few organizations are more creative than others. 3M, Google, Yahoo and Apple have become icons of corporate creativity. But creativity is not limited to these companies alone, IBM, Intel, AMD, Microsoft, Oracle, and a host of others file hundreds of patents every year. This implies that creativity can be imbibed into the organization.

Indian companies are now catching up with their western counterparts in setting up the right Observing the best practices in these successful innovative organization, companies can learn how to foster creativity. To begin with, these companies hire creative people, provide training to enhance creativity, provide the right environment to promote innovation and provide the right tools.

Creativity in an individual can be enhanced by providing the right tools and training to use those tools. This may sound surprising for many, but there are lots of tools and methods to enhance creativity: Brain Storming, Lateral thinking, Six thinking hats, Random word, The Discontinuity principle, Tinkertoys, Forced analogy, Morphological forced connections, Imitation, Mindmaps, Storyboarding, Synetics, Metaphorical thinking, Lotus Blossom technique etc.

Companies are now training all their employees to use these tools at work to enhance their creativity. In Bangalore NineDots offers training on these tools. Nine Dots Consulting offers a comprehensive suite of learning and training solutions tailored specifically according to the requirements of clients. Our team of highly experienced training consultants has been collaborating with clients, such as Oracle, Accenture, ABB, and Robert Bosch to stay competitive by designing custom learning programs.

Examples of Indian Innovation

India has a long history of innovation. Starting from the vedic ages with the development of numerical system, geometry, algebra, ayurveda, astronomy etc. Tippu Sultan’s army was the first to use rockets in a battlefield. Indian innovation in architecture, construction, irrigation during the 1600-1700’s can still be seen in the ruins of Hampi. In 1990’s Indian IT companies innovated the global delivery model. Now Indian hospitals are innovating in the space of "tele-medicine". India’s success in medical tourism is a direct benefit of India’s innovation in medical affordability - which in turn was a product of several innovations in surgical techniques, process re-engineering of pharmaceutical drugs, material technology etc.

Lately, Indian automobile industry has demonstrated resounding success of Indian innovation. Bajaj Auto created DTSI technology and designed Pulsar bike, Mainigroup’s Reva, Mahandra’s Scorpio, Tata Motors created Sumo, Safari, Indica, 209, 407, and a slew of trucks. The success of Indian automobiles has made India proud and Indians are now being recognized for their innovation. Global auto giants such as GM, Ford, and Daimler-Chrysler have setup R&D centers in India.

Today we are seeing lots of startups and established business houses promote innovation in their organization. The need to innovate has become essential for the very survival of Indian business. As a result, companies are looking at ways and means to imbibe a culture of innovation in their organization.

"Innovate on the Move" TM Workshop on creativity and innovation

Bangalore based firm NineDots conducts several workshops to foster creativity in organizations. NineDots now offers "Innovate on the Move" an unique workshop tailored for Indian firms. "Innovate on the Move" workshop is designed to foster creative thinking and efficiently manage innovation in an organization. This workshop was a product of deep insight into Indian needs for innovation, constrains faced by organizations and the culture of Indian organizations. This workshop focuses on imbibing a culture of innovation by enhancing creativity of the individuals and helping them manage their creative outputs into an innovation which creates economic value to the organization.

Thursday, December 14, 2006

By now most people who read my blog would be aware that Wal-Mart is finally entering India via a 50:50 Joint Venture with Bharti. Very shortly, TESCO will also be making another big splash on entering India with another tie-up. While this bodes good news to Indian economy and increases foreign investment in India, there is a looming threat to all the organized retailers: A severe talent shortage.

Talent Shortage in India

I had briefly mentioned about this talent shortage in my previous article. But the crisis is really BIG. Global giants really have a big problem on their hands - when it comes to rapid expansion in India.

This is a surprising challenge for Organized retailers - especially global retailers in India is shortage of talent. Yes, for all the population that exists in India and for all the shops, India has a serious shortage of experienced people resource for retailing. Number of people experienced in managing complex supply chain, people who have basic merchandising skills, people with store planning skills are very few. As a result, most of the existing retail stores have poorly organized merchandise, inadequate inventory, and excessive inventory - leading to lost sales and increased capital requirements. (see: Increasing Sales in a Retail Store - An Indian Context ) Global retail giants will have to spend substantial resources in terms of time & money to train local workforce and bring them on par with their global standards.

If finding store managers is a challenge, the bigger challenge is to find the adequate workforce for store clerks, cashiers, sweepers, helpers etc. The problem here is not that of availability - but that of availability of the right kind of people - and the cultural divide that exists between the potential employees and their employers.

To understand the talent crisis, take a look at the demand for workers. Currently the Indian retail sector - both organized and unorganized employees close to 40 million workers. Of which only 1.8 million workers are employed in the organized retail sector. Most of these workers are also shop owners - India has an estimated 30 million shops & kiosks. A vast majority of the people who are employed in the stores lack the skills to work in an organized retail sector.

Retailers Association of India estimates that an additional 2 million workers will be needed in next two years - this is to meet the requirements of the existing planned expansion in the retail sector. Hiring and training in such large numbers in such a short time will be a challenge for even the biggest retailers.

Hiring the Right Talent

Most people who work in retail shops are school dropouts from mainly rural background, they do not speak English nor do they understand the sophisticated IT systems. Added to this there is a social stigma for working at a shop. Indian society does not give respect for such professions.

All this implies that global retailers must develop a unique strategy to hire and train their shop floor staff. As a result most workers treat working at a retail outlet as a temporary job - till they find a better one in an "office". This implies that employee turnover will be very high - as much as 40% per year. At such rates of turnover, people management becomes a big challenge. Global retailers will have to develop unique organization development strategies, employee retaining strategies and also have a plan to improve the image of working in shop - i.e., remove the stigma of working in a shop.

Global giants will also face a challenge when it comes to recruiting the quality talent in India - as most of the shop floor workers are not well educated, they will not be aware of companies such as Wal-Mart or TESCO or Target. On the contrary - every villager in India has heard of Reliance, Tatas, and the likes. Thus the battle for hiring the right talent will be doubly difficult for global retailers.

Cultural Divide

MNC’s have the tendency to hire the best talent. In India they will do the same. So the companies will hire the top MBAs to manage their operations. But these people often tend to come from the upper castes and they have a social stigma when it comes to dealing with people from lower castes - the shop floor workers. This social barrier will cause a lot of operational problems. In addition, people in the corporate headquarters will have cultural barriers when it comes to dealing with their local managers in India. Thus this double cultural barriers can deliver a knockout blow to any global giant.

Global retailers will have to cast a wide net to get the right kind of talent. In urban areas, most of that talent will come from school dropouts and are slum dwellers. Making a good salesmen out of them will involve intensive training and above all extraordinary management skills. Retailers need to invest a lot in soft skills training, behavioral training, customer orientation, sales training, etc. And at the end of the day, these workers who live in slums or shanty houses without basic facilities - will have to dress up and come to work in sparkling air conditioned retail outlets.

Global retailers will have to expand beyond the metro cities - to tap into new markets and hire the right talent. Here in second tier cities and towns, English is not a primary language. It is always the local language of the state: Kannada, Tamil, Telgu, Marathi, Hindi, Gujarthi, Punjabi, and 20 other languages. Global retailers must build the capability to carry out operations in multiple languages, train its staff to speak in both local language, national language (hindi) and if required in English. Even though the shop floor employees need not know multiple languages, the store managers definitely need to know.

Closing Thoughts

Global retailers may be eyeing Indian markets eagerly and few are hustling for that elusive first mover advantage - but they face a huge challenge in India. Success in Indian retail segment will be a hard won battle - battle not against competition, but a battle against the business environment. This implies that success in India will depend on prudent leadership and their ability to overcome the cultural differences to create a talented workforce.

Recently I went to a movie in Bangalore. It had been quite some time since I did that - for the fact that I was in London. In the last 6 months so many things have changed in Bangalore - that I was surprised by all the new development. Old buildings have been torn down and new one being built all the time. And these new buildings are housing new shops, offices - that I had seen in the US & UK. A walk in a shopping Mall in Bangalore reveled so many international retail stores - Marks & Spencer's, Swaroski, Lewi’s, Bose, Nike, Reebok, Sony, D’mas, etc. All these started operations in last 2-3 years. But the real surprise is the fact that 100’s of global retailers are eager to enter India.

According to AT Kerney’s report, India is the most favored destination for global retailers. AT Kerney’s Global Retail Development Index 2005 puts India at the top.

India Offers a Vast Opportunity

The sheer size of Indian retail segment - almost $1 trillion! - and growing at 15% is exciting enough for all global retailers. Wal-Mart recently entered into a JV with Bharti and will soon be setting shop in India. Other retailers waiting on the wings are: TESCO, Carrefour, IKEA, Target, VF brands, etc. The rush to enter India intensified in 2006, when government opened up Foreign Direct Investment in retail sector. Added to this is the fact that Indian consumers are under served by the existing retailers. A vast portion of Indian population lives in Villages or non-metro cities - which are poorly served. This implies that almost 70% of Indian consumers do not have access to quality retail markets - And that segment is worth more than $350 Billion.

Opportunity has Road Blocks too

However, foreign retailers are subject to host of regulations. For example, only single brand retailers can now own upto 51% of the equity - this forces them to enter into JV with a local partner(s). Large format discount retailers - like Wal-Mart, Sears, Target are still not allowed in India. Yet global retail giants are eagerly waiting. Wal-Mart had setup two offices in India - mainly to study the Indian market. TESCO has setup an office to source from India and to learn the local operations.

Another big problem in setting up operations in India is the availability of real estate space. Traditional Indian shops have been small ~ 1000 sq. feet. Many of the inner city buildings are old & depilated and is unfit for global retailers. This is forcing retailers to build in the outskirts of the city and hope that people come to them. Metro built huge stores at the edge of the city - these stores are in Cash-and-carry format catering to small shops. Setting up new super stores on outskirts of the city is not easy either. Tax laws in the country and social pressures have caused fragmentation of land holdings. So if one wants to buy a large plot of land, one has to negotiate with hundreds of land owners - which will take time and endless negotiations.

The next problem in setting up organized retail operations is that of supply chain logistics. India lacks a strong supply chain when compared to Europe or the USA. The existing supply chain has too many intermediaries: Typical supply chain looks like:- Manufacturer - National distributor - Regional distributor - Local wholesaler - Retailer - Consumer. This implies that global retail chains will have to build a supply chain network from scratch. Which might run foul with the existing supply chain operators. In addition to fragmented supply chain, the trucking and transportation system is antiquated. The concept of container trucks, automated warehousing are yet to take root in India. The result: Significant losses/damages during shipping.

A surprising challenge for Organized retailers - especially global retailers in India is shortage of talent. Yes, for all the population that exists in India and for all the shops, India has a serious shortage of experienced people resource for retailing. Number of people experienced in managing complex supply chain, people who have basic merchandising skills, people with store planning skills are very few. As a result, most of the existing retail stores have poorly organized merchandise, inadequate inventory, and excessive inventory - leading to lost sales and increased capital requirements. (see: Increasing Sales in a Retail Store - An Indian Context ) Global retail giants will have to spend substantial resources in terms of time & money to train local workforce and bring them on par with their global standards.

The Hidden Challenge

Lastly, there is a HUGE hidden challenge. The challenges mentioned above are just the tip of an iceberg. The biggest challenges are well hidden: and that is cultural differences, political challenges, policy regulations, and ethical standards.

Indian consumers are different. The cultural differences have to be accounted when designing the store, setting up the merchandising mix, servicing the customer in the store etc. These cultural factors come in several flavors depending on which part of India you are looking at. Writing about all the cultural factors that pose a challenge to global retailers is beyond the scope of this article. I will write about them in future. The cultural nuances of the Indian consumer is so complex that it cannot be documented in a blog - instead one needs to write a whole book on that topic.

Political challenges are something which the global retailers will have to deal with. India is a federal state. With a national government at the center and state governments ruling the states. This implies that there are multiple sets of political and governmental clearances are needed for retailers. Having a national license from New Delhi will not suffice. One also needs clearances from various state governments, city corporations, district administration etc. Negotiating this for a global retailer will prove to be a challenge. For example, POSCO - Korean steel manufacturer found out to their dismay - that having a Government clearance is not enough in India.

Another challenge for most retailers is that of ethics. Global companies tend to have a different ethical standards - which may be against giving bribes or supporting local political candidates etc. But adhering to these standards in India will surely cause lot of problems to their local operations. How companies go about resolving this problem is a serious question. Many companies therefore prefer to have a local partner who can take care of these issues - but this has some serious implications.

India is a socialistic democratic country with a strong labor union movement. Global retailers will have to deal with the concept of unions. US based companies such as Wal-Mart has a strict policy of no unions in their company. However that policy will be severely tested in India in the long run. Local unions will not impose themselves on the global retailers in the beginning - but over a period of time, unions tend to creep in. Even in ITES/BPO sector, unions are trying to muscle their way - but is being resisted by the government and investors.

Hidden Competition

On the first appearance, the fragmented Indian retail sector looks like it may not offer serious challenge to the global giants. But the truth is far from it. Indian retailers are a resilient lot and will offer intense competition - against which the global giants will find it tough. It will be more like an army of ants bringing down an elephant. To understand this consider the case of Metro - the German retail giant in India. Metro entered India in 2003 with a superstore format. Metro wanted to sell to other small shop owners/retailers on a cash-and-carry basis. Initially Metro was able to give a significant price discount when compared to other retailers - but soon that advantage disappeared. Local retailers are now able to beat Metro on price on most items.

Closing Thoughts

India offers the greatest opportunity for retail business - But it also offers the most complex challenge for them. Global retailers who have succeeded abroad in multiple countries will struggle in India. But the size of Indian opportunity is so much that global retailers will take their chances. Success in India will depend on the local partners, consultants and executive leadership.

Wednesday, December 13, 2006

A few months ago I had written about Externship. Today I saw an article which talks about externship is some format. Accenture, E&Y are now encouraging its former employees to return. Ex-employees are now being seen as tomorrow’s employee.

See: http://biz.yahoo.com/ap/061212/business_of_life.html?.v=1--------------------------------------------------------------------Bosses to Ex-Workers: Let's Be FriendsTuesday December 12, 1:25 pm ETBy Ellen Simon, AP Business WriterCompanies Court Former Employees to Return or Refer New Clients.

NEW YORK (AP) -- The old view of corporate exes -- employees who leave for other jobs -- was that they were deserters and traitors who must never be spoken of again.

The new view: They're a fantastic network.

"Either they're our clients, or potential clients or referrals to other clients," said Jill Smart, chief human resources officer at Accenture Ltd. "They also help as teachers and mentors for our people."

Particularly in a fields where the labor pool is tight, today's ex-employee is seen as tomorrow's current employee. The message: We'll keep a light on for you in your old cubicle.

Children's Healthcare of Atlanta sends former nurses the hospital's employee magazine, Careforce Chronicles. The Principal Financial Group sends former employees letters twice a year saying, "We're the same company you enjoyed, consider us again."

Departed employees are courted with official employee alumni networks that offer electronic directories of former colleagues, job listings, continuing education, even discounted group insurance. Microsoft's alumni group rented the entire Seattle Aquarium for its after-the-holidays party last year. Accenture toasted its alumni with drinks and appetizers at New York's Museum of Natural History.

Some departing employees are singled out for a charm offensive.

Audit senior manager Danica Dilligard left Ernst & Young LLP in 2003 after six years with the company. E&Y's courtship began almost immediately. The E&Y partners she'd worked with called, saying, "Just wanted to make sure you're happy. There's always a home for you here." She was invited to E&Y golf outings, where she played in a foursome with the partners. She was included in professional certification courses and welcomed at networking events.

One of the partners' calls came after the hectic run-up to a budget meeting at her new job, where she was a controller overseeing a $300 million operation. She hadn't seen her family all week. She said, "It's time. Can we have lunch?" she recalled.

He promised that if she returned, she'd have more flexibility than she did before, including the time to coach her daughter's cheerleading squad of 45 seven- and eight-year-olds. She returned to E&Y after three years on the other job. Her team at E&Y pushes her out the door on Tuesdays and Thursdays so she can make it to cheerleading practice and the squad has won two local competitions.

The way E&Y's partners tended to their relationship with her is a far cry from how corporations used to see departed workers.

Vandy Van Wagener, who became brand manager of Ivory soap at Procter & Gamble Co. in 1977, remembers how departing executives were viewed then. The day he started his new position, he went to the personnel department to find a photo of the brand manager he'd replaced, who had left for another company. The man's photo was already in the waste basket.

Jerry Stevenson, now a director in the communications practice at Buck Consultants, tells a similar story about Electronic Data Systems Corp. "When I left EDS almost two years ago, all formal communication with the company ended." That was an element of the company's culture, he said. "An old joke within the company went, 'When you leave EDS, they scrape your car off the parking permit.'"

David Arcemont, vice president of global recruiting at EDS disagrees, saying the company has always welcomed back former employees. In 2006, roughly 7.5 percent of hires were returning employees, he said. Gordon Curry, an executive speechwriter at the company, said he was welcomed back as a freelancer four months after he left and was quickly given his old job back, full-time.

Corporate views of past employees may have softened partly because the waves of layoffs that started in the 1980s meant the number of former employees was legion. Many former workers hadn't jumped; they were pushed. When the economy got better, some returned to their old companies as consultants, temps or "boomerang" hires.

In law, accounting and consulting, where relationships are as important as credentials, companies have realized an updated phone, e-mail and title directory of former employees may be one of their greatest assets. Silicon Valley powerhouse law firm Wilson Sonsini Goodrich & Rosati's alumni network hammers that point home at the top of its Web page, which says, "Powerful contacts. Powerful resources. Staying connected."

Law firm Latham & Watkins LLP gives lawyers it is interviewing access to the alumni directory before they've been hired, so they can start networking with former employees before they even start work. McKinsey & Co.'s employee alumni database has long been viewed as one of the keys to the consulting firm's power.

At some companies, the equation is much simpler. The Principal is based in Des Moines, Iowa, which is now the sixth-oldest state in the nation, as measured by the percent of the total population 65 or older, and finding workers in a shrinking labor pool is a constant challenge. To court its retirees, the company welcomes them at the company gym and wellness center.Principal worker Macil Hiatt, 72, officially retired in 1998 after a 38-year career, took less than a year off, and has worked there in temp jobs almost ever since.

Hiatt, who remembers when the company got its first coffee machine in 1979, was recently finishing a project in the company's pension department.

Tuesday, December 12, 2006

India has emerged on the global business map and global giants are eager to enter India. In their rush to enter India, global companies are entering into a slew of joint ventures and strategic alliances. While some of these ventures are driven by government regulations, most are driven by their need to lower risks. In my previous article, I had mentioned that JV offers a lower risk option to enter newer markets for Indian companies venturing abroad. The same hold true for foreign firms entering Indian markets.

Notable JV of Recent Times

Tata Motors & Fiat: The JV will manufacture cars from Tata & Fiat stables. Tata Motors will also buy diesel engines for it cars from Fiat, while Fiat will distribute Tata cars in Europe.

Mahindra & Renault: This JV is the market entry strategy for Renault. The JV will manufacture Renault’s Logan cars in India. Renault will gain market knowledge - while Mahindra’s will learn how to make good cars, and leverage its dealership network to additional profits.

Tata-AIG: This JV was created to take advantage of the new government regulations on private insurance companies. Private insurance companies need foreign collaboration for technical know how. While the current regulations prevent foreign insurance companies setting up a green field venture in India. Similarly other JV in this field are: ICICI Lombard, ICICI Prudential, Bajaj- Allianze etc.

Bharthi-Walmart: JV was primarily created by Wal-Mart’s desire to enter India and the government regulations regarding large foreign retail firms operating in India. This 50:50 venture with Bharti will give Wal-Mart an entry into India ( a long awaited one at that)

Why form JV?

The main reasons for a JV has always been an entry strategy. JV provides a lower risk option of entering into a new country. For Fiat, Pepsi, Ford, Xerox, Suzuki, etc., the JV is an ideal way to enter Indian markets and establish itself as a leader ahead of other competition. The JV also provides an opportunity for both the partners to leverage their core strengths and increase the profits.

For example, Modi-Xerox venture gave Xerox an early lead in the photocopier market and help secure a strong brand recognition. For the Modi group, this turned out to be a very profitable venture. JV also provides a learning opportunity for both the partners. A smart partner will learn a lot about other partner’s capability. For example, Xerox learnt about distribution channels and copier usage model from the JV. TVS learnt a lot about making motorbikes from Suzuki.

Other reasons to form a JV in an Indian context are:

Technology: When partners have mutually rights over exclusive technology, then JV forms an option to exploit the opportunity by combining these technologies. Alternatively, when a partner has identified a profitable market opportunity - but does not have the necessary technology, then a JV is an option to go. However both parties need to have a good understanding to protect each others IP.

Lower Risk of Geographic Expansion: A JV with a local partner is an ideal way to minimize risks of cross-border expansions. For foreign firms a JV with a local partner lowers risks via: ability to hire the best talent, knowledge of local markets, connections with local government, pre-existing distribution networks etc.

Government Regulations: In most emerging markets government rules and regulations prevent foreign players from establishing a wholly owned subsidiaries. For example, Indian government laws prevent foreign retailers, insurance companies from entering India directly. The current regulations force these companies to form JV with local partners

Access to Capital: Often times companies in emerging economies lack capital to expand. A JV or an strategic investment will infuse capital to the local operations and make it more profitable. In an emerging economy - the local partner provides the distribution network, human capital and government links as its investment in the JV, while the foreign partner provides the capital and technology.

JV has a definite Life span

All JV’s have a definite life span. Oftentimes the end objectives and exit strategy will be negotiated during the formation of the JV itself. Despite the fact that everyone knows that a JV has a definite life span, most JV falls apart earlier than expected.

The main reason why a JV falls apart is changes in partner’s strategy. Often either one of the partner changes their strategy which makes this JV redundant. For example Ford-Mahindra JV. Ford wanted to expand the operations but Mahindra wanted to focus more on SUV segment and did not want to invest for the expansion. Thus forcing Ford to go alone.

Often times the conditions which made a JV necessary change - like government regulations, access to technology or capital or the partner has gained sufficient confidence to go alone: All this causes the JV to fall apart. For example TVS-Suzuki JV fell apart when TVs learnt how to design motorbikes on its own. TVS designed "Victor" on its own and it was a success. This gave TVS the confidence to go alone.

Another popular reason why a JV falls apart is when the JV is successful. The JV becomes a cash cow and both the parties now want greater control over it. This often results in a nasty fight for control - and in the process the JV falls apart. Alternatively, when a JV is not doing well, the partners start blaming each other and want to take over the control to prevent further deterioration.

Closing Thoughts

Joint Ventures are becoming a popular means to enter Indian markets for global giants. However, the risks of cross-border expansion are slightly lowered, but they still remain. To have a successful JV, both partners should have a good understanding of each other’s cultures, establish a good work collaboration and work towards a common objective. The risks of cultural integration still exist - often times management from both the sides often ignore the cultural integration issue assuming that they can take care of it - but cultural integration often falls between the cracks - and the JV ultimately fails.

Sunday, December 10, 2006

Year 2006 will probably known as the year when Indian businesses & Indian businessmen emerged on the global map. India’s emergence in the global business arena has been driven mainly by acquisitions and mergers. In January 2006, Lakshmi Mittal CEO of Mittal Steel launched a hostile takeover bid for Arcelor - which was completed by July 2006. On similar lines, Tata Steel went abroad with acquisition of NatSteel in Singapore and Corus Steel in the UK.

Notable cross-border acquisitions

Some of the Notable cross-border acquisitions in the year 2006 are:

Videocon Industries buying Daewoo Electronics - $731 Million

Dr Reddy Labs acquires Betapharm Arzneimittel - $572 Million

Ballarpur Industries buys Sabah Forest Industries - $261 Million

Ranbaxy Labs acquisition of Terapia - $324 Million

Suzlon Energy buys Hansen Transmission - $565 Million

In total, Indian firms spent $15.72 billion in 192 overseas acquisitions. While this number may not be significant when compared on a global scale, this number is significant in the global context. The real significance of this should be seen from the fact that next year this number could double or even triple, making India as Asia’s largest acquirer abroad.

India Plays with Global Expansion

Indian companies are using all the tricks of the trade to go global: Mergers & Acquisitions, Organic expansions, Green field investments, and Joint Ventures. The scale and the business share may not be significant today, but Indian businesses are slowly but surely establishing themselves abroad.

Tata Motor’s successful acquisition of Daewoo’s truck unit in 2002 in S. Korea has become a classic business case study. Tata acquired a loss making unit - and without any layoffs, turned the loss making unit around. This built enormous goodwill and reputation for Indian companies in S. Korea. This helped Videocon acquire Daewoo Electronics and is aiming to acquire LG-Philips LCD Co. In S. Korea. Success of one acquisition in a particular country/market has prompted other Indian companies to look for acquisition in the same country. Given this mentality, one should not be surprised if Indian companies make a major acquisitions in S. Korea in 2007.

Similarly, Tata’s successful acquisition of Tetly Tea in UK prompted several Indian companies to look for acquisitions in the UK and European markets. Tata-Corus deal (if it succeeds) will mark a new beginning for mega deals involving Indian companies.

Why opt for Acquisitions

Indian companies have long practiced conservative business practices, have maintained almost zero debt and are in very good financial health. This when coupled with access to significant pools of capital - either foreign debt or stock markets - creates an ideal situation for acquisition abroad. Another potent power which Indian companies can leverage is its vast pool of highly talented human resources. All this when combined together creates an ideal conditions for Indian companies to expand abroad.

The reasons for cross border acquisitions by Indian companies stems from their traditional thinking: Reduce risk and build global competencies. Cross-border acquisitions make natural sense for Indian firms. The five main reasons (pretty much in the same order) why Indian companies opt for acquisitions are:

The lure of access to global markets.

Leveraging the synergy with the existing businesses

Strengthening the acquired company - via better management

Reduce competitive threats and vulnerability to other global giants

Create a Global Company.

To understand, consider the example of Dr Reddy Labs acquisition of Betapharm Arzneimittel. This acquisition gives Reddy Labs access to German and high grown Central & Eastern European markets. Betapharm Arzneimittel’s business has a good synergy with Dr. Reddy’s existing business, and give the company a significant presence in Germany.

In 2006, the largest number of acquisitions were in the pharmaceuticals sector, followed by IT and manufacturing sector. Indian companies are buoyed by strong local demand, red hot stock market, strong management capability and a desire to move up the value chain. Indian managers have the vision to go global - this vision is further encouraged by brain gain, when experienced expiates are returning back to India and using their rich experience and capability to help local firms expand abroad.

Risks in Cross-Border Acquisitions

Cross-border acquisitions are always fraught with risks. Indian companies also have to face a lot of risks when compared to European, Japanese and American companies. The risk is greater for Indian companies - mainly because Indian firms lack experience in international acquisitions & mergers, coupled to it, Indian companies are not exposed to different cultures. The five biggest risks Indian companies face cross-border acquisitions are:

Risk of overpaying for the acquisition or Risk of over-leveraged acquisitionIn a competitive bidding scenario, there is a high possibility of over bidding for the acquisition, and that may result in Indian firms over-leveraging for the foreign acquisition. This risk is particularly very high in a cyclical markets when the market is on the upswing.

For example, Tata Steel would be over paying for Corus Steel if Tata outbids CSN. CSN had bid 475 pence a share Vs Tata Steel’s original bid of 455 pence a share. Coupled to that Tata Steel’s acquisition strategy is driven by taking on large debt to pay for Corus acquisition - and things can get really nasty if there is downturn in the global steel industry.

Risk of downturn in the global market

Companies which deal in commodity products: steel, metals, chemicals, etc. face the risk of global downturn in markets. For example, Tata Chemicals acquired UK based Brunner Mond - this acquisition made Tata Chemicals the 3rd largest manufacturer of Soda Ash. If there is a downturn in this market, then Tata Chemicals will be in trouble. (Also see: China’s Globalization Plans off to a rocky start)

Cultural Integration Risks

Cross-Border acquisitions always carry the risk of cultural integration. Though this risk exists in all acquisitions, the risk is particularly greater in a cross-border, cross-cultural acquisitions. For example when Tata Motors was bidding for Daewoo truck division, The biggest challenge for Tata Motors was to convince the bankruptcy courts that Tata Motors are a serious about their bid and had a viable revival plan. Toughest challenge for Tatas was to integrate Korean workforce with the new Indian-Korean management. Similarly, when Indian companies acquired American firms in early 2000, there were cultural integration issues - where American employees were reluctant to work under the Indian management.

Government Regulations can affect Global Markets

Sectors like health care, Pharmaceuticals, and Energy are highly regulated by governments. Changes in government regulations can have severe impact on the profitability.

Political Instability in emerging MarketsRisks of political instability are very high in emerging markets. For example coup in Thailand, Fiji, instability in Nigeria, Central Africa, Zimbabwe etc. Can have adverse effect on profits. Many Indian companies are expanding in Africa, and Asian markets - which are susceptible to political risks.

Minimize risks with Partial Acquisitions

Since acquisitions carry a great risk - companies can try to take another route to avoid the risks of an outright acquisition - use partial acquisition. Partial acquisition is when a company acquires a substantial stake in another company - and with a right to buy the remainder as per a predetermined plan or without an option to buy the remainder.

Companies like to use this option of partial acquisitions so that they can learn the local operations from the partner - without exposing themselves to these operational risks. This is a preferred way to enter new market segments and new geographies - where the company has very little experience. For example, Tata Tea has acquired 30% stake in Energy Brands Inc., the maker of flavored tea drinks. Since Tata Tea does not have expertise in selling soft drinks - this will be an ideal way to venture into new areas. Similarly, ONGC has invested 15% in a Brazilian oil exploration venture.

Joint Ventures is also an attractive option

Ranbaxy completed five acquisitions in the year 2006. This is surely a mark of success and confidence, for Ranbaxy - this was just another year in their long march towards becoming a global pharma giant. Ranbaxy started venturing abroad via joint ventures. In 1977, Ranbaxy expanded into Nigeria via a joint venture. Today Ranbaxy has several JV all across the world.Joint ventures offers a low risk option for going abroad. Often times, a joint venture is used as an entry vehicle into foreign markets. Aditya Birla group used joint venture as a preferred means to enter into Thailand, Egypt, China, Canada, and Indonesia.

Another company which used JV to successfully expand abroad is Essel Propack. Essel Propack is the world’s largest manufacturer of lamitubes - used to package toothpaste, gels, and creams. Essel operates in 14 countries and has 24 manufacturing facilities. Many of these outposts were created via JV, acquisitions and green field ventures. Essel’s march into the global scene has been partially driven by the fact that its main product - "empty tubes" are not cheap to transport, thus forcing the company to setup manufacturing facilities close to its customer locations. Essel has a global vision and an advantage of lowest cost operations. This helped Essel acquire Propack - which propelled Essel to the top.

Main reasons to opt for Joint Ventures: Lower risk OptionJoint Venture with the local partner will lower the risk as the local partner knows the local market, the local partner has greater capability to attract talent, has the necessary contacts/links with the local government, and provides an entry into new markets.

Unfortunately, JV also has the highest failure rates - if the venture becomes successful, one partner will try to muscle out the other, or if the venture fails, the partner tries to blame the other. Having a well defined exit strategy is vital to prevent a painful breakups.

Green field Ventures

Establishing green field ventures is a core competence for several Indian companies. Tata group for example has setup several green field operations in South Africa, Kenya, Nigeria, Sri Lanka, Vietnam, etc. Mahindra & Mahindra has setup new operations in China to make tractors.

Indian companies have been very prudent when expanding into newer territories. Indian management lays a great emphasis on integrating the overseas operations first. Only when the management gets a feeling of comfort that the overseas operations is fully integrated, Indian managers will look for further acquisitions.

A classic example of this prudent expansion is Asian Paints - 2nd largest manufacturer of decorative paints. Asian paints started global expansion in 1999. Initially this was done via small acquisitions in Egypt, Sri Lanka etc. This was followed by well managed integration and then a green field expansion. By 2003, the company had enough expertise and experience to play a bigger role in acquisitions - it acquired Berger International. This acquisition gave Asian paints a global reach to market its products over 70 countries.

According to Ashwin Dani, MD of Asian Paints: "We have rolled out a mega operational efficiency initiative which focus on productivity, safety, environment, reducing losses, planning & Control systems. So the message is clear - you should constantly adding value to your acquired operations"

Closing Thoughts

These risks have not decreased Indian companies appetite for acquisitions. Understanding these risks have prompted Indian companies to approach cautiously towards acquisitions - starting with small, less than $30 Million, all cash acquisitions in late 1990’s - Indian companies have progressed steadily to multi-billion dollar acquisitions. Several Indian business houses have built a dedicated capability for acquisitions: Tatas, Ranbaxy Laboratories, Dr. Reddy Labs, Wipro, Ruias, Videocon, Kalyani etc. Past successful acquisitions have also added to the confidence levels of Indian firms.

While Indian firms are expanding abroad - more global giants are entering India. Global Retail giants, Banks, Insurance companies, manufacturing firms - cars, tyres, consumer goods, heavy engineering, chemicals etc. - all are eager to enter India. Some are forced to enter into joint ventures with Indian companies due to legal legislation while others are pondering on how to enter Indian markets.

International business fraternity has finally recognized that Indian firms are credit worthy and has the expertise to successfully manage global assets. This confidence can be seen how willing the banks are willing to help Tata Steel to acquire Corus.

Indian companies have just started venturing abroad. In the next decade, lot of Indian multinationals will be listed in the Fortune-500 list of companies. As a vanguard of things to come, Infosys is now listed in NASDAQ-100 index - the first Indian company to achieve this fame.

Tuesday, December 05, 2006

In my recent articles I had written about the challenges involved in working across cultures. The challenge of work collaboration across cultures becomes more acute as organizations grow and have operations across multiple geographies. Most companies respond by deploying various collaboration tools (mostly software tools). While these tools are essential to improve collaboration, the value of these tools will not be realized fully unless these address the complete needs of the organization.

For example at my previous firm, the initial challenge of collaborating across Sunnyvale office and Bangalore office was met with VoIP, Video Conferencing, Internet, Intranet, Shared drives and a Project workflow Management software. While these tools were useful in the beginning, but as the company expanded operations in Taiwan and Israel these technologies were not enough. We found out that people in Taiwan & Israel were not using these collaboration tools to the extent that was needed to maintain a standard level of collaboration. To get over this problem, the company deployed a knowledge portal and several other region specific Internet portals to help in Taiwan & Israel.

The Challenge

Collaboration across cultures is always a challenge. With the advent of multiple collaboration tools, collaboration has improved - but this is only a temporary reprieve. As companies grow in size, the need for collaboration increases and so does the complexity of the joint tasks. As the organizational complexity increases, companies tend to do one of the following:

Deploy more tools and invest in newer collaboration tools

Believe that existing tools are sufficient and refuse to invest in additional collaboration tools

Often times companies respond to this challenge by deploying more software, more tools and technology. Deployment of multiple tools - improves collaboration but beyond a point, increasing technical solutions does not promise a similar return on investments. The law of diminishing returns will apply to organizations - and the cost of maintaining these collaboration tools will exceed the return on these investments.

In my experience, Silicon Valley companies tend to favor the first option, while rest of the world tend to favor the second option.

Recently, I was involved in a case where a leading Telecom company in UK had deployed 23 web portals - all to do the same job. After some prodding, the program director decided to optimize this into a set of 6 web portals. This type of rationalization is very rare in the industry and the reason for it is quite obvious - there is no single department or a group which deals with improving cross-border, cross-site, cross-cultural collaboration. Most of the collaboration tools were deployed on ad-hoc basis and once they were deployed nobody ever reviewed its value or its performance.

At the same time, there was another IT services company serving the largest British telecom company - which had serious operational issues because the company had not invested in proper collaboration tools. This was the 7th largest Indian IT services company with more than 15000 employees spread over 6 countries - and the company had very few collaboration tools to talk about.

Few companies deploy collaboration tools on ad-hoc basis - any tool to overcome the current problem. This is done by individual groups and is independently of the corporate planning. The result is reinvention of the wheel, repetition of work and an endless list of collaboration tools which are rarely used. This leads to excessive investments and lower ROI.

Most companies are usually very reluctant to deploy collaboration tools - and will invest only if it becomes a critical bottleneck. Indian IT companies, manufacturing companies typically tend to work this way. Companies are scared to invest in things on which ROI is easily measured. As a result, these companies do not collaborate very well - resulting in poor performance, disjoint efforts and wasted resources.

In both cases the results are not optimal - thus resulting in lower ROI. The root cause for this type of problem in both the companies is surprisingly common. Companies do not have a plan or a process to review its collaboration needs and then develop a solution that is geared to meet those needs.

Current Collaboration Tools in a Glance

Today, there are several collaboration tools available for any company. Some of these tools are widely used such as Telephone and Emails etc. The following table lists the current set of tools that can be used.

Phone Based Tools

Land lines with International dialing

Cell Phones with SMS, ISD and email ( blackberry)

Voice mail on land lines & Cell phones

VoIP: Connect remotely or direct dialing

Video Conferencing

Tele-Conference facility

Voice to Text transcription

Digital voice recording

Voice to Text Transcription services

Video Broadcasting

Internet Based Tools

Web based Email

Shared Drives & mapped drives

Microsoft Net Meeting or Web Ex

Instant Messaging

Microsoft exchange or Lotus Notes

Company Web Pages

FTP gateways & servers

Knowledge Databases or portals

Project workflow manager

Issue Tracker

Secured Internet Portals

Microsoft sharepoint services

CVS or revision control tools

Podcasting

P2P networks

Intranets

VPN

Blogs

RSS

Wikis

Online forums

Chat Rooms

Bulletin Board Service (BBS)

Salesforce.com or web based third party services

Social Networking web sites

The list of tools is ever growing. But the fact is that several tools are now available to enhance collaboration. The usage & deployment of these tools are beyond the scope of this article.

Challenges in Selecting the Right set of Collaboration Tools

Most organizations agree that they need collaboration tools, but the major challenge lies in selecting the right set of tools based on their needs and budgets. Often times, companies do not have a firm understanding of the organizational needs: Managers do not have a firm understanding of their organizational structure and organizational design, Managers do not understand the cultural differences within different parts of their organization, Managers do not understand the impact of collaboration tools on the organizational structure and employee culture.

The gaps in understanding results in either over/under investments in collaboration tools or lack of utilization of the deployed collaboration tools - which ultimately affects the nature of collaboration between various parts of the organization.

Deploying the right technology and the right tool is critical for the success of work collaboration. To illustrate this consider an example of British Petroleum. BP developed and installed a video conferencing system on all its oil rigs - this system was called “Virtual Teamwork”. Virtual teamwork stations platform stressed on the richness if the communication between and the company implemented the state of the art technologies (in 1993) to make this happen. Virtual teamwork platform consisted of Video Conferencing system, multi-media computer system, e-mail, desktop application sharing, document scanner, digitally shared chalkboards, video recording facility, groupware software - Lotus notes/domino, and Internet. Back in 1993, this was the state of the art technology. Even today, most companies do not have all the above collaboration tools in every single location.

This investment paid off regularly and handsomely. This system allowed BP experts in one location to troubleshoot problems on different oil rigs. When one of the rigs in North Sea had a problem - causing a complete halt in production, an expert from Houston was able to join the video conference and see the malfunctioning equipment visually over the video. He quickly diagnosed the problem and guided the site engineers through the necessary repairs. Without this Virtual Teamwork system, it would have cost BP lots of money - the cost of lost production was running at $150,000/day, in addition the expert had to be flown in to the oil rig on a helicopter - all this meant big savings for BP and higher operational efficiency.

Development & Deployment of Collaboration Tools

A common problem in developing & deploying collaboration tools is that the onus of developing and deploying these tools often falls on the IT department or the project managers or divisional directors. In all these cases, the people whom are entrusted with this task do not have a clear vision or strategy for their intercompany collaboration. This leads to ad-hoc deployment or non-deployment.

Often times, companies take great interest in developing and deploying a custom built collaboration tool. Once the tool is deployed, all the relevant employees are trained to use it - and then something stupid happens: forget to support the tool. As the organization grows & expands in other georgaphies, or when new employees join, they will not be trained on how to use the tool. As a result new employees or employees in other locations do not use this collaboration tool - and eventually the tool is discarded.

Another common mistake in deploying collaboration tools is that the tools are developed with only one language interface (mostly English) and the same tool is imposed on their subsidiaries in non-English speaking nations. People whose native language is not English will find the tool difficult to use and thus do not make full benefit of it. Ideally multi-site collaboration tools should have multi-language interfaces so that people from different cultures can make use of it. If multi-language support is not available, then the language used in the tool must be simple enough for everyone to understand ( if not, please provide a good thesaurus built into the tool)

Ideally, the person or department who is entrusted with this task must have a thorough understanding of the organizational needs, must understand the impact of culture on the usage of collaboration tools, account for cultural differences between various parts of the organization, account for the need for continued training and support for the deployed tools.

Closing Thoughts

Global business delivery, and global sourcing requires excellent collaboration between various business units. In the world of global outsourcing - either IT services or production or distributed production etc., the need for collaboration is now greater than ever before. Selecting the right collaboration tools is just the beginning. Deploying these collaboration tools, supporting and maintaining these collaboration tools is the biggest challenge. Often times companies fail to invest adequately for deploying various collaboration tools - and even when the company spends the money, it is not spent wisely. Companies often times fail to take cultural, language and operational issues into considerations while deploying these collaboration tools.

The key to success today is effective collaboration between various business units (this includes internal business units, business partners, and vendors). Collaboration tools are there only to help and improve the work collaboration. Without the right set of tools, the level of collaboration will never reach its full potential.

To successfully deploy collaboration tools, one needs to consider the cultural issues, organizational design, technical competence of the users, adequate training for the users and continued support of the tools.

Thursday, November 30, 2006

I am starting a new blog is dedicated for analysis of investments. Mainly stock investments, mutual fund investments and other bank instruments. In this blog I will mainly write about financial analysis and how my investment decisions are based on these analysis. The analysis are based on my learnings during my MBA studies at University of Texas. I will be writing about the stocks I own, stocks I buy and stocks I sell. These trades will be based on market analysis based on annual reports and market trends.

Initially my analysis will cover only Indian stocks and Indian investments as these are the only once I will be investing in. However, I will cover few US stocks too - namely Intel, IDT, Oracle and Accenture.

In the last several articles I have written about benefits of cultural diversity, the need for cultural diversity and how to manage cultural diversity in an organization. Today, almost all companies in Silicon Valley have embraced cultural diversity and have learnt to thrive in a culturally diverse world. But outside the silicon valley, American companies are yet to understand the impact of cultural diversity - let alone manage cultural diversity.

Recently, I was talking to a senior executive at an American company based in Austin, Texas. This company has drawn up ambitious plans to expand operations in Bangalore, India. Few months ago, the company setup an office and started staffing up its Indian operations for a major R&D project. Within months problems arose - managers were unable to resolve the conflicts between its Indian team members and their American counterparts. The collaborative work environment collapsed into a battle zone. The CEO was then informed about this problem rushed into Bangalore to take stock of the situation. But even his intervention would probably fail to stem the rot and the company may have to start its operations all over again.

Ethnocentrism and Parochial attitude is the result of interaction with a different culture. Managers who are often sent abroad have little knowledge or experience in dealing with a foreign culture. As a result, these expat managers tend to respond to cultural differences which can be called as "Ethnocentrism" and "Parochial Attitude"

Ethnocentrism

Ethnocentrism results when managers recognize the differences in cultures - but have a tendency to think that their culture and their way of doing things is the right way, their way of doing things is the only way and their way of doing things is the best way. Any deviation from their culture or from their way of doing things is seen as "distortion" or as a "mistake" or as "Wrong way".

Most people have the tendency to follow ethnocentrism. Americans, Japanese, Chinese, Germans, French, Scandinavians, and Russians are more prone to ethnocentrism than other cultures - when compared to other Asians, Latin Americans, British, Australians, Africans and Indians. ( I do not have a scientific evidence to prove this - but the above statement is based from my experience.)

Ethnocentrism is often ingrained into almost all cultures. Every dominant culture tends to think of itself as the center of the world. For example, the word "China" means the middle kingdom. At the height of the Chinese empire, China truly believed that China was indeed the middle kingdom and even the Japanese, Koreans and Cambodia - all referred to China as the middle kingdom. The British empire drew the modern world maps with the Zero longitude passing through London - thus making England as the center of the world. US today refers to non-Americans as "Aliens" - a term which shows the ethnocentric attitude.

Parochial Attitude

Parochial attitude refers to a persons inability to see cultural differences. This is exactly the opposite of ethnocentrism.

Managers who are sent abroad often meet people who are also dressed in suits and speak their language - this prompts them to ignore all other cultural differences and make them think that all others are "just like us". In today’s business world, most people tend to dress similarly - in suits or other formulas and talk in English, But this does not mean that all people have the same culture - but people often only see the surface and assume that the other person shares the same cultural values.

Expat managers from US/UK often tend to display a strong parochial attitude - mainly because the people with whom they interact on regular basis can speak English and are dressed similarly in suits or western dresses.

Impact on Businesses

Often times, expat managers tend to display both parochial attitude and ethnocentrism at the same time. Problems in the organization are often blamed on cultural differences or on the culture of the local employees while successes are attributed to the culture/practices at the head office.

The inability of the managers to recognize the benefits of cultural differences puts these expat managers in a constant state of cultural blindness which at first seems to have no negative impact on the organization. On the contrary, by failing to recognize cultural differences, organizations and managers initially succeed abroad. This initial success is often due to the fact that the local employees tend to play the role of a gracious host - and accommodate the demands of the expat manager. But over a longer period, local employees tend to settle down to their usual practices and that's when the expat managers find it difficult to manage.

Parochial Attitude and Ethnocentrism together tend to pull off a 1-2 punch on the expat managers. The problems/failures are often blamed on the local culture while successes are attributed to the expat’s culture. This demotivates local employees and trouble starts in the local operations. Parochial attitude forces the expat managers to ignore local culture and in the process his/her behavior would have offended local sensibilities - thus creating discontent among the local staff.

Companies which are newly going global or expanding into a new country have to be on the guard against some of the common management mistakes - Parochial Attitude and Ethnocentrism. The problems faced by expat managers are often blamed on the local employees - without fully understanding the true situation. This results in several false starts, misguided efforts and wasted resources.

Even established global companies tend to suffer from Parochial Attitude and Ethnocentrism from time to time. This is mainly because the expat managers who are sent to manage the local operations are not fully briefed or aware of the impact of culture on business operations.

The best solution to this problem is to create awareness among all managers. Both expat managers, company bosses in the head offices, and local employees must have a good understanding of each other’s cultures and have a working plan to benefit from this cultural differences. Often times, the managers and top executives are so busy working on operational issues - that they might be better off hiring external consultants/coaches who can guide them though this maze of cultural differences and bring out the best from that organization.